Mining and oil groups dig in for Bribery Act

Published on 14 Sep 2010 under category: article

By William MacNamara
Published by FT.com on September 13 2010 22:23

The UK’s strict new bribery law is prompting a nervous flurry of preparation among London’s multinational mining and oil companies, which now face unlimited liability for failing to prevent corrupt acts of any employee round the world.

This month the ministry of justice is set to consult with UK companies about the new UK Bribery Act, which will come into force in April 2011.

For many mining and oil companies, which are particularly active in emerging countries prone to corruption, the act is worrisome because the details remain unclear. Guidelines on how the government will enforce the new laws will not be revealed until January, when the current period of consultation ends.

But the guiding principles are clear. Raising anti-bribery standards above even those of the US Foreign Corrupt Practices Act (FCPA), the UK act will expose UK-registered companies to unlimited criminal liability for any employee or contractor’s acts of bribery.

“The bribery offences contained in the act are very broadly described and potentially extend to activities which had not previously been considered in any way improper,” said Andrew Legg, partner in the London office of Mayer Brown, the law firm. “Clearly this is not limited to brown envelopes stuffed with cash.”

Like all law firms surveyed, Mr Legg has noticed a surge in companies asking for advice, noting that it extended far beyond the mining and oil industries.

A representative for one of London’s biggest mining companies offered an example of a standard practise that is now cause for concern. The company recently flew the mayor of a town in Chile to a copper mine in a remote part of the country. The mayor was offered transport, food, accommodation and a tour of the facility.

That was reasonable, the person said, because the mayor is a local stakeholder who needs to understand the project. But the company may need to review such practices, the person said, because under strictest interpretation of the new act, the trip could be considered a bribe.

Groups such as the CBI are seizing on “legitimate promotional expenditure” – such as the invitation to the mayor – as among a range of issues they want clarified during the government consultation. Another issue, said a source involved in preparations, is how exposed UK companies will be to acts committed by joint ventures partners that are state-owned oil or mining companies.

Unlike FCPA in the US, the UK’s Bribery Act makes no distinction between petty corruption – such as greasing the palm of a customs officer – and grand corruption such as the pay-off of a government minister.

In its most far-reaching change it sets to prosecute companies not merely for paying bribes but for failing to prevent bribe-paying or receiving among employees.

“There is no other offence in English law where failing to prevent something in this way is a criminal offence,” said Arnondo Chakrabarti, litigation partner at Allen & Overy.

A company’s only defence is a claim that it has “adequate procedures” in place that should have prevented such an act by all reasonable means.

The act comes into force at a time when London is increasingly home to the world’s emerging markets-facing resources giants, such as BHP Billiton, BP, Rio Tinto, Royal Dutch Shell, Anglo American, Xstrata, ENRC and others.

The countries these companies operate in include Guinea, Russia, the Democratic Republic of Congo, Nigeria and Kazakhstan. These countries ranked in the bottom third of Transparency International’s 2009 Corruption Perceptions Index, which cross-references surveys to gauge which countries are most prone to official corruption.

ENRC, the London-listed Kazakh miner, is investing more and more in Congo, a country that ranks close to the bottom of Transparency International’s list. Guinea, the site of a big iron ore project for Rio, ranks even lower. BHP is also invested there.

Decisions to invest in such countries may now come under even stricter scrutiny in the boardrooms of UK plc. In part, this is because of their reliance on local workers who have a different conception of bribery than UK law.

“It’s rare that employees of the big companies would pass out bribes themselves. The risk is around the third-party contractors who are paid on commission,” Mr Chakrabarti said. “Among the topics in the consultation process will be: how do these companies make sure that they hire the right people.”

While the Serious Fraud Office will have the authority to prosecute under the new act, it is not yet clear whether the intention is to prosecute companies vigorously or simply leave them in a state of fearful self-policing.

“There is a real incentive for corporations to get their house in order and ensure that their procedures are adequate to combat bribery,” said Mr Legg. “The SFO will come down heavily on those who use bribery as a means to achieve a business advantage”

The many UK multinationals that comply with FCPA “already have a head start”, he added. “But they will still need to adjust. The first people whose heads will roll are those without adequate procedures in place.”